McDonald’s fancy new coffee menu should terrify Dunkin’ Donuts

An analyst just downgraded Dunkin’ Donuts due to McDonald’s revamped coffee menu. McDonald’s added new, more gourmet drinks to its McCafe menu in September. McDonald’s is currently offering drinks at lower prices than Dunkin’ Donuts – which puts the coffee-and-donut chain in hot water.

On Friday, Mizuho analyst Jeremy Scott published a report downgrading Dunkin’ Brands based, in part, on the recent success of McDonald’s McCafe brand in the US.

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McDonald’s new McCafe drinks

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McDonald’s

“McDonald’s relaunched the McCafe brand in September with a new line of espresso-based beverages (after equipment upgrades) and we expect its coffee products will be featured prominently in each pricing layer of its upcoming national value plan,” Scott wrote in the note.

In September, McDonald’s announced that it had added a new set of espresso-based drinks to the menu: a caramel macchiato, a vanilla cappuccino, and an americano. All coffee McCafe beverages cost just $2 – significantly less than Starbucks, and similarly priced to Dunkin’ Donuts.

For example, a tall caramel macchiato at Starbucks costs nearly twice as much as McDonald’s caramel macchiato, at $3.95. A small macchiato at Dunkin’ Donuts costs around $2.89.

The move is already paying off for McDonald’s. On Tuesday, the fast-food chain reported that sales at stores open in the US for at least one year rose 4.1%, marking the chain’s third consecutive quarter of increasing sales.

As a chain that is attempting to sell a wide range of beverages – including some more gourmet options – at lower prices than Starbucks, McDonald’s new coffees may hit Dunkin’ Donuts particularly hard.

“We view Dunkin’s straddle between value-orientation and upmarket beverages as increasingly challenging in a marketplace where the spectrum of price points for both drip and espresso-based products continues to widen,” Scott writes.